Lawmakers Offer Film Industry a Fix on California Tax Credit Cap

Lawmakers in Sacramento introduced a budget fix on Thursday that helps film producers by adjusting a state cap on tax credits.

The agreement, first reported by Variety on Tuesday, falls short of a full carveout for film and TV tax credits from a blanket $5 million annual cap, which industry leaders have been seeking since June.

But the deal does fully exempt tax credits for independent films, while accelerating the payback period for tax credits for major studio projects.

The Motion Picture Association supports the measure, as does the Producers Guild of America and the Entertainment Union Coalition. The bill is authored by Assemblyman Rick Chavez Zbur and Sen. Ben Allen, two of the industry’s strongest supporters in the California Legislature.

A summary of the bill, SB 1229, states that it will “mitigate some of the impacts” of the $5 million cap on tax credits, which was approved as part of the state budget in June. Industry unions had protested that the cap would undercut the state’s incentive for film production, which was expanded to $750 million last year, by preventing studios from claiming the full amount of their credits.

The MPA and the unions pushed to fully exempt film credits from that cap. But in negotiations with Gov. Gavin Newsom and leaders in the Legislature, it became clear that an industry-specific carveout would trigger demands for similar carveouts for the tech industry and other stakeholders.

Instead, the bill allows studios to take advantage of improved refundability provisions. Under current law, studios can exchange their tax credits for cash if they agree to a 10% discount and a repayment over five years. The bill cuts that payback period to two years and requires only a 5% haircut, making that a more attractive option.

The deal also allows producers more time to claim old, non-refundable tax credits that were issued prior to 2025. Those credits are set to expire after nine years, and some studios are at risk of being unable to use them because they will not have sufficient tax liability. The deal extends that expiration date by up to five years.